July 13, 2021
Authored by: Eliot Robinson and R. Randall Wang
As companies prepare upcoming periodic reports, they should focus on carefully reviewing and updating their risk factors. Some of the considerations may include:
- COVID Risks. As a number of business sectors improve, it may be advisable to revise COVID-related risk factors to reflect the changing economic climate. In some cases, the focus may need to shift to address challenges in increasing production, managing supply chains, hiring workers or otherwise responding to increasing customer demand. In other cases, companies that benefited from dramatic changes in the economy during the pandemic peak may need to address potential risks associated with a return to normalcy. For example, consider whether recent growth trends are viewed as sustainable in light of the MD&A requirement to discuss “known trends or uncertainties” that the company “reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income.” At the same time, it may be appropriate to continue to caution investors as to uncertainties as to the future course of the pandemic – particularly as concern with the impact of variants evolves.
- Labor Markets. Many sectors and regions are experiencing labor shortages. To the extent material, companies should consider disclosing in MD&A the effect of labor market conditions on their results of operations, and discussing possible future impacts in risk factors.
- Hypothetical Risks. Risk factors typically include a wide range of topics intended to warn investors of potential adverse events, most of which may not have not ever materialized. These are included